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We conduct an empirical investigation of the relative importance of competing hypotheses that attempt to explain observed differentials in overage pricing. Our analysis makes several contributions. First, we use tobit techniques to estimate the parameters of the model. Second, we include a number of variables that are not available in previous analysis. Specifically, we use borrower and lender characteristics that go beyond gender and race. Third, we are able to consider the impact of the bargaining capabilities of individual loan officers on the overages paid by borrowers, including minorities and women.

Using proprietary data from different branches of a particular bank, this paper demonstrates that a large component of the explained variance in overages traces to variables proxying for the degree of competitiveness in the markets associated with these loans, and to differences in the bargaining power and expertise of both loan officers and borrowers. We find differences in overages collected from different ethnic groups, and though it is far too soon to conclude that this is due to bigotry, to the extent that our models are well-specified, this would probably constitute discrimination from a regulatory perspective. Variables controlling for risk prove less effective in explaining overages, perhaps because our sample includes only loans that were actually approved and made. Thus, they all represent relatively good risks, and might not display enough risk variation to detect.